AUSTRALIAN DIARY: Everything you need to know about the week ahead for markets

HONG KONG – MAY 23: A sculpture titled ‘Pentateuque’ representing an elephant balancing on the back of a man by French artist Fabien Merelle on May 23, 2013 in Hong Kong, Hong Kong. (Photo by Jessica Hromas/Getty Images)

Stocks had a good week. Not spectacular but good, with the Dow and S&P 500 in the US both more than 2.5% higher. In London, the FTSE rose more than 3% and in Germany the DAX’s rally was closer to 4%. Locally even though the ASX 200 ran into solid overhead resistance, it still finished the week at 4,952 up 187 points or 3.92%.

The Aussie dollar had a solid week ending trade at 0.7148 while iron ore, copper and crude ended higher. Crude’s rally for the week was even after a big fall back below $30 a barrel on Friday night.

Most markets, stocks, gold, USDJPY, crude oil amongst others, ran into levels and reversed early week moves. So it was a messy week but one of consolidation of recent moves across most markets.

The week ahead sees the release of important US GDP data, Japanese CPI, Australian CapEx data and an IEA global outlook for Oil.

Top Stories

  • Market Bottom redux. Last week I mentioned that myself and others thought the stock market might have found bottom, for the moment anyway. In the end it was a positive week for stocks with significant billions “wiped back on” to stock markets all around the globe. In the US, the bellwether S&P 500 market has made a double bottom but also a triple top in what looks like a great big W. That tells us the markets are somewhat in balance with neither the bulls or the bears having the upper hand.

    S&P 500 Futures (MT4, AxiTrader)

    That’s good news. If neither the bears or the bulls have the upper hand then things might be choppy but the market – traders and investors – get time to re-evaluate true value. If the topside breaks, Marc Chandler thinks they might then need a “move above 1950” to complete the pattern. Then the next objective for the S&P 500 “is near 2100”. Other indicators are pointing to a topside break he said:

    The five and 20-day moving averages have crossed to the upside. The S&P 500 gapped higher after the US Monday holiday and then again the following day. Those gaps are found near 1864.75-1871.50 and 1895.75-1898.90. We suspect the second one may be a normal gap, meaning that it will likely be filled in the coming sessions. The first gap, we think, is a breakaway gap and will not be filled. It is part of the bottom that has been carved.

    That’s a ride the ASX 200 and local shares should hitch along with.

  • Inflation on the up? Surely not, but maybe yes. If so it’s a game changer. Chinese Consumer prices in the year to January were up 1.8%. That’s the the fastest annual acceleration seen since August 2015 David Scutt reported during the week. Swedish inflation rose an amazing 0.8% in January and that figure is higher than at any point since 2012. It is the first rise since the introduction of negative interest rates, signalling that the experiment may, finally, be working, as Will Martin wrote Thursday. Then on Friday US consumer price data showed headline CPI flat month-on-month with the year-on-year rate at just 1.4%.

    But when you exclude the volatile food and energy components of CPI prices rose 0.3% in January (market expectations +0.2%) and that saw the year-on-year rate accelerate to 2.2%.

    This is important. Because the Fed, and other central banks, have been warning inflation is only being held down by “transient” factors – read that as the crude price crash. Myles Udland reckons that the inflation data shows everybody calling for the Fed to admit defeat is wrong. Read together the increase in inflation data in these three disparate nations and the possible stabilisation of the crude oil market after the Saudi/Russia production deal (yes it’s a big if, stabilisation), then markets may be underpricing the risk of a Fed tightening mid-year. Certainly that’s the message San Francisco Fed president John Williams left investors with on Friday. Williams said the outlook he held in December remains his core view. That is “despite the Sturm und Drang of international and market developments, the U.S. economy is, all in all, looking pretty good.” As a result, he continues “to see a gradual pace of policy normalisation as being the best course”.

Economic Calendar

Australian Calendar – (courtesy NAB Economics, our emphasis)

Some meaty data releases lie ahead this week with the Q4 ABS Wage Price index report on Wednesday together with the first of two pre-GDP investment partials with Construction Work Done, followed Thursday by New Private Capital Expenditure (Capex). The Capex survey has estimates of Q4 spending, with updated expectations for financial year 2015/16 and importantly the first estimate for 2016/17. Note that December quarter GDP is the week after on 2 March.

RBA Assistant Governor (Financial Markets) Guy Debelle is speaking on interest rate benchmarks at a capital markets conference Monday, certain to draw interest for his usually incisive and frank views on the market and outlook. The RBA’s Tony Richards is also speaking to a Payments System Conference, though is unlikely to be relevant for markets.

  • Private new capital expenditure December quarter: The quarterly Capex report will continue to reflect the lumpy nature of spending on new and existing projects this quarter, with NAB expecting a decline of 4.0%, driven primarily by the unwind in mining investment. Our continuing interest in what the survey says (and also for policy makers) is in regards to the prospects for non-mining investment which has been weak for some time. NAB’s outlook for Capex for the rest of 2015/16 implies declines of around 5% a quarter (driven by a 10% a quarter fall in mining investment) as likely as major resource projects approach completion, and this is close to our -4% Q4 forecast.

  • NAB’s expectation of the first estimate of New Private Capital Expenditure for financial year 2016/17 is $86bn, embodying an assumed 30% decline in mining investment in 2016/17, against expectations of a 7% rise in non-mining investment. In broad terms, the expected rise in non-mining investment is consistent with the NAB quarterly survey (Chart 3), with the expected prospective pull back in mining investment falling to 2009 levels. We note that this estimate is highly speculative.

International Calendar (NAB Market Economics)

Global: With oil continuing to drive market volatility, the International Energy Agency’s (IEA) Five Year Oil Outlook released Monday may garner interest.

NZ: A very light week ahead. Credit card billings, net migration, finance minister English speaks, new residential lending and merchandise trade.

China: G20 finance ministers and central bankers Shanghai meeting the main focus; very quiet for data with property prices on Friday to draw interest.

US: A full data set and more Fed speakers. Conf. Board Consumer Confidence Tuesday, new home sales Wednesday, weekly jobless claims and durable goods orders Thursday, then the important trio of GDP (Q4 first revision), January personal spending and PCE deflators, then final February UoM consumer sentiment survey, all out Friday.

Euro: Preliminary Manufacturing/Service PMIs (Monday), German Ifo survey Tuesday and German/Eurozone CPIs Thursday, Business Confidence Friday.

Japan: Manufacturing PMI Monday, BOJ’s Kiuchi speaks Thursday, ahead of CPI on Friday.

UK: Thursday’s Q4 GDP and any fallout from the EU Summit on UK’s EU negotiations after David Cameron announced the date of the “Brexit” referendum for weather the UK stays in or leaves the EU June 23 this year.

Canada: BOC’s Deputy Governor Schembri speaks on Wednesday. Data flow minimal.

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